Captain and others: Goldman Sachs "warning" on MSFT last week has been validated by the MSFT results. You may recall that GS also said that slow sales of commercial PC's was one of the causes. I notice that GS is now saying that it underestimated MSFT's loss of revenues by one third and Goldman is also saying this evening that it thinks that slow sales of commercial PCs will carry over into the 2Q.
In assessing the potential effect of the MSFT news on CPQ and the market next week, GS other views should be taken into consideration. They thought that improved ASP for PC's ameliorated some of the damage from slow unit sales, even though they remained cautious about hardware company commercial PC's results. MSFT did not have improved ASPs to soften the blow of slow unit sales - in fact, they had deteriorating margins on old office products.
For MSFT they thought there would be further weakness but the 2nd half would be strong with new products and better margins.
The GS views on MSFT were considered last week to be a contributing factor to market sentiment which resulted in the "crash". Does anyone have an opinion whether the MSFT results after hours will once again trigger a broad testing of the market lows - or given that MSFT is already heavily corrected after the GS opinion and given the three days holiday, and given that other techs have had good earnings, the market will discriminate between MSFT problems and those of other techs?
B: Microsoft Earnings Up 24 Percent
SEATTLE, Apr 20, 2000 (AP Online via COMTEX) -- Microsoft Corp.'s third-quarter
earnings rose 24 percent from a year ago amid analysts' concerns over lagging
computer sales and investor worries about its ongoing legal woes.
Those concerns won't likely go away, as the company's new chief financial
officer, John Connors, said Thursday both earnings and sales in the fourth
quarter, ending June 30, would be flat -- the first time in memory the software
company predicted no growth.
For the quarter ending March 31, Microsoft had profits of $2.39 billion, or 43
cents per share, on sales of $5.66 billion -- a 23 percent increase in revenues.
In the same period a year ago, the company made $1.92 billion, or 35 cents per
share, on revenues of $4.6 billion.
The results squeaked by analysts' expectations of 41 cents per share, as
reported by First Call/Thomson Financial, but did not impress Wall Street.
``This is pretty weak,' said J.P. Morgan analyst William Epifanio. ``I expected
much higher sales than this, even with the Y2K bug effects in the last quarter.
``Microsoft really needs a breakout quarter if they're going to move the stock
price,' he said. ``It would really take something like getting $6 billion in
revenues (in this quarter) to make that kind of impression.'
Microsoft reported earnings after the regular trading ended on the Nasdaq Stock
Market, where shares finished at $78.93 3/4, up 25 cents. In after-hours
trading, shares were trading down $3.31 1/4 to $75.62 1/2.
Microsoft shares were hit hard this month after a federal judge's antitrust
ruling against the company on April 3. U.S. District Judge Thomas Penfield
Jackson ruled that Microsoft violated antitrust law by illegally using its
monopoly power. The case stems from a lawsuit filed by the Justice Department
and 19 states.
Several days later, on April 12, prominent analyst Rick Sherlund of Goldman,
Sachs & Co., reduced his estimate of Microsoft's revenues by $200 million due to
slow corporate computer sales, sending shares downward again.
Sherlund said after seeing the results Thursday that he ``probably should have
cut $300 million out' and that the problem with slow PC sales could stretch
into the next quarter.
That could give investors more to worry about. Connors said fourth quarter
revenues would likely only increase by $100 million from this quarter, to about
$5.76 billion, and cautioned analysts that an earnings per share estimate of 41
cents would be ``realistic.'
While Microsoft has generally been very conservative, Connors' estimates would
put Microsoft's revenues for the fourth quarter at the same level as 1999 -- a
first for the company, which has at least predicted modest growth in every
quarter. Earnings per share would likewise remain stagnant.
Connors noted, however, that the introduction of Office 2000 in the fourth
quarter last year made it a ``tough quarter' to follow, even as the new Windows
2000 operating system gains greater acceptance.
Analysts have said that Windows 2000, designed for corporate networks and work
stations, will help boost sales in future quarters. It was introduced Feb. 17,
though most corporations who might purchase Windows 2000 will take their time in
testing and installing the new software.
Since March 31, when the stock closed at $106.25, Microsoft has plummeted more
than 25 percent, contributing to a major market selloff and investor uncertainty
that continues to linger.
The stock hit its 52-week low of $73 on Monday and, as of Thursday's end of
regular trading, is down 14 percent over the past 12 months compared with the
Standard & Poor's 500 composite index, a widely recognized barometer of the
overall stock market.
For the first three quarters of the year, Microsoft earned $7 billion, or $1.27
per share, on revenues of $17.2 billion. Last year, Microsoft had net earnings
of $5.6 billion, or $1.02 per share, on sales of $14 billion. |
